After completing the activity illustrated below answer the following questions:
Problem 1. What decision concepts (theories, principles, heuristics, etc.) were demonstrated for each of the situations within the Unit 5 Activity? Be sure to justify and explain your rationale for choosing each principle.
Problem 2. What do these decision concepts imply about the ways in which we people make decisions?
Problem 3. Can any of these decision concepts lead to critical errors in judgment? Why or why not? Be sure to support your conclusions.
Activity: The Social Side of Decision Making
Activity 1:
A man bought a horse for $60 and sold it for $70. Then he bought it back for $80 and again sold it for $90. How much money did he make in the horse business?
Now let's see how a group attempts to solve this problem. Imagine the following group discussion.
Wendy (The group leader): I'm suspicious of the problem – it seems deceptively simple. Let's each share what we think the answer is, and say a few words about why we think our answer is right.
Bennett: I'm pretty sure the answer is $10. The way I solved the problem was to think in terms of a stock exchange. If I buy a share of stock for $60 and sell at $70,. I'm up $10. Then, if I change my mind and buy the same stock at $80, I've just paid $10 more than $70 and erased my earlier earnings. Selling the stock at $90 leaves me $10 ahead, though, so I come out okay.
Jill: My answer was $20, because the man makes $10 the first time he buys the horse and $10 the second time. After hearing Ben, though, I'm not sure whether this answer is correct.
Wendy: Don't worry about whether you are right – we're just trying to lay out all the possibilities. What about you Steven?
Steven: I think the right answer is $30. The man starts with $60 and ends up with $90, so how can his profits be anything other than $30?
Amy: His profits would be $30 if he never had to borrow any money, but after selling the horse for $70, he had to come up with an extra $10 to buy the horse for $80. This leaves $20 in profits - $30 minus the extra $10 he borrowed.
Wendy: So you agree with Jill?
Amy: Yes, in fact, I think the only reason this problem seems confusing is that the same horse is being bought and sold. If the problem involved two separate horses, the answer would be obvious.
Bennett: What do you mean?
Amy: Well, suppose the man bought Horse A for $60 and sold the horse for $70. How much profit would he have made?
Bennett: $10.
Amy: Now suppose the man buys a second horse – Horse B – for $80 and sells the horse for $90. How much has he gained?
Bennett: Another $10.
Amy: Exactly, so the man ends up $20 ahead. His profits don't depend on whether one horse is traded or two horses are traded – he gains $20 either way. If you like to think of the problem in terms of stocks, imagine trading two separate stocks rather than one. It's a mistake to think that buying the second stock for $80 represents a loss of $10 – to lose money, the man would have had to sell a stock for less than he bought it for.
Now put yourself in this group. Amy concludes her explanation, and your turn comes to explain why you answered the problem as you did. After you finish with your explanation the leader asks each member of the group to record a final answer. Before you do, however, consider that textbooks can also be prone to error. You have a choice: You can either maintain your original answer or you can change your answer. What are you going to do?
Answer:
The correct answer is $20.00. How did the conversation or the textbook disclaimer influence your judgment? What does this imply about decision making?
Activity 2:
What principles were demonstrated in each of these situations? What do these principles and models imply about the ways in which we make decisions? Can even the idea of another person influence personal decisions? Why or why not? Consider your responses to these questions, revisit your assignment list and then share your ideas with others in the discussion room.
Questions and Answers
Question 1: What is Social Comparison Theory and how does it impact judgment?
People often take their cues from other people and they are very concerned about the opinion that other people have about them. Researchers also say that people also evaluate their opinions and abilities by comparing them with others. The most elaborate theory of how they make these judgments is known as "social comparison theory."
Proposed by Leon Festinger in 1954, he postulates that people have a need to evaluate their ability levels and the appropriateness of their opinions, and that in absence of objective nonsocial standards they compare themselves with others. His theory contains nine hypothesis and eight derivations, the most central of which are:
• Hypothesis I: People have a natural tendency to evaluate their opinions and abilities.
• Hypothesis II: To the extent that objective, nonsocial information is unavailable, people evaluate their opinion and abilities of other.
• Hypothesis III: Given a choice, people prefer to compare themselves with others who are close to them on opinion and abilities.
Reference:
Festinger, L. (1954). A theory of social comparison processes. Human Relations, 7, 117–140.
Question 2: How do social comparisons influence perceptions?
In 1978, Kenneth Craig and Kenneth Prkachin found that social comparisons with someone who has a high pain tolerance can actually lead people to experience less pain than they would otherwise. Subjects in this study were given electronic shocks to their left forearm. At first the shocks were barely detectable, but as the experiment continued the shocks increased. There were two experimental conditions: the tolerant modeling condition and the control condition. In the tolerant modeling condition each subject was paired with a confederate who posed as another subject and consistently rated the shocks as 25 percent less painful than did the actual subject. In the control condition the confederate simply observed the subject. They found that the subjects who were paired with someone else concluded that the shocks were less painful and responded to increases in shock intensity with less physical arousal. In other words, social comparisons affected actual bodily processes as well as individual ratings of the pain level.
Reference:
Craig, K. D., & Prkachin, K. M. (1978). Social modeling influences of sensory decision theory and psychophysiological indexes of pain. Journal of Personality and Social Psychology, 36, 805–815.
Question 3: What is groupthink?
As defined by Irving Janis (1982), "groupthink refers to a deterioration of mental efficiency, reality testing and moral judgment that results from group pressure." According to Janis there are eight common symptoms of groupthink:
• An illusion of invulnerability, shared by most or all group members, that leads to over optimism and excessive risk taking
• Collective efforts to rationalize or discount warnings
• An unquestioned belief in the group's inherent morality
• Stereotyped views of adversaries as too evil to make negotiating worthwhile or too weak and stupid to pose a serious threat
• Pressure directed at any group member who dissents from the majority view
• A shared illusion of unanimity
• Self censorship of deviations from the apparent group consensus, and
• Self appointed mind guards who protect the group from information that might challenge group complacency
Reference:
Janis, I. L. (1982). Groupthink: Psychological studies of policy decisions and fiascoes (2nd ed.). Boston: Houghton Mifflin.
Question 4: Are there parallels between groupthink and attribution error?
A parallel certainly exists at least between "self-serving" biases and "group-serving" biases. In the former, individuals make dispositional attributions for their successes and situational attributions for their failures. In the later, group members make dispositional attribution for the group successes and situational attributions for group failures. Donald Taylor and Janet Doria (1981), for example, compared self-serving and group-serving biases among intercollegiate athletics and found that group-serving biases were at least as strong as self-serving biases. Specially, athletics exhibited group-serving biases by attributing their team success to good team play more often than they attributed failures to bad team play.
Reference:
Taylor, D. M., & Doria, J. R. (1981). Self-serving and group-serving bias in attribution. Journal of Social Psychology, 16, 107–117.
Question 5: What is group polarization?
Group polarization is the tendency for group discussion to amplify the inclinations of group members. This phenomenon was first documented by James Stoner, who found that subjects were more willing to advocate risky actions after they had participated in a group discussion. Stoner referred to this change as "risky shift," and since the time of his initial experiment hundreds of studies have explored the topic.